D6 Business | 2R | SUNDAY, OCTOBER 19, 2014 MutualFunds IS ACTIVE MANAGEMENT DEAD? NO WAY Fund Tracker shortterm periods. To achieve the same results, an actively man Chuck Jaffe aged fund typically must Syndicated columnist overcome higher expenses, Whenever meaning it must generate something is better returns than the “new and index just to hope to match improved,” the performance of the it is seen as benchmark. the death Index funds, meanwhile, knell for sacrifice the chance to “beat whatever the market” and are came be doomed to decline whenev fore, because the original er their index is troubled. idea is now old and down Morningstar’s John Rek graded. enthaler noted recently that Thus, a case can be made Vanguard’s actively man that smartphones, tablets aged funds actually have and laptops have killed the outperformed their more desktop computer, or that storied index peers, al satellite radio has killed though the active results traditional terrestrial sta may have been helped by tions. the fact that Vanguard has The argument is interest closed some disappointing ing, but there are plenty of performers in recent years. people happily using the old In short, even if “indexing methods. is better” is now seen as the That’s been important to rule, there are lots of excep remember lately as fund tions. experts (again) have been Moreover, even if all of making the case that index the evidence points toward ing has killed active man index funds being the “bet agement. ter” investment, the proof It’s not a new argument. isn’t so much in the studies, Some of that buzz has been but in an investor’s portfo kicked up as the Vanguard lio. Group — the world’s lead Talk to financial advisers ing fund company best who espouse the benefits of known for its index offer passive investing, and you ings — approaches the may also find that they are $3 trillion mark in assets; actively managing portfoli the same kind of case was os of index funds, trading being made at least $2 tril the funds based on market lion ago and at various trends or intuitions. points along the way. There’s no guarantee that The rest of the renewed the person managing a buzz has been generated by portfolio of “better funds” — the media, where there has and adding an additional been no shortage of strong layer of costs in the process cases, from a variety of — actually is improving sources, ranging from Mar performance. In the vein of ketWatch interview with “new and improved,” that’s Chris Philips, one of the like saying a nail gun is passive pioneers at Van better than a hammer, guard, to investment legend which stops being true Charles Ellis suggesting in when you shoot yourself in the Financial Analysts Jour the foot with it. nal that “performance in Countless studies have vesting ... is no longer a shown that investors typi game worth playing.” cally get the worst out of All told, index funds and mutualfund performance, exchangetraded portfolios buying in only after there now account for nearly 30 has been strong perfor percent of all money in mance and selling out when funds; it was onethird that there’s a frightening down level in 2000. turn, meaning that the That kind of growth and funds are bought at a high the inherent commonsense and sold near a low. of index investing — plus You can bumble your way the gazillion examples of to that strategy in index how paying a money man funds every bit as much as ager to attempt to beat the with actively managed market is a folly — leads to funds. all of the “active manage So while there’s a clear ment is dead” talk. case to be made that the But just as some people index fund is the biggest keep working on desktops best ride in the financial or start their car and tune in amusement park, that to AM radio, so do actively doesn’t mean you won’t get managed funds still serve a sick if you’re not emotional purpose for a lot of inves ly prepared to be strapped tors. in to the rollercoaster’s ups Flawed? Sure. and downs. Dead? Not by a longshot. The right strategy, there While more than two fore, is less about active or thirds of the $16 trillion passive management than invested in mutual funds is finding something comfort actively managed, there’s able, limiting your activity not really much arguing the level and focusing on the activeversuspassive strate total portfolio and progress gy case by now. toward your goals rather Even active managers than whether all of the acknowledge that an index individual pieces beat their fund — which passively respective benchmark. tracks a benchmark and It matters less that some tries to keep costs to a mini thing is the newest and mum — typically is a better most improved, and more bet longterm than a fund in that you are satisfied with the same asset category what you’re using. When where an average manager you’re no longer satisfied, tries to do better than the that’s when it’s time for an market yardstick. upgrade. Simply put, most active Chuck Jaffe is senior columnist for MarketWatch. He can be reached managers — saddled with or at significantly higher costs — at cjaffe@marketwatch.com P.O. Box 70, can’t top the index standard Cohasset, MA 020250070. over time, even if they are Copyright 2014, MarketWatch capable of beating it in Winners and losers: A mutualfund scorecard Your Funds Healthcare stock funds resilient in downturns By STAN CHOE The Associated Press NEW YORK — When swings in the stock market cause anxiety to spike, like it is now, many investors aim to get healthy. Stocks don’t come with guarantees, but healthcare stocks have held up better than others during past downturns. People get sick regardless of the economy’s strength, after all, and an aging population around the world means more demand for prescription drugs and hospital care. That has brought more attention to healthcare stock funds, as worries about a weak global econo my have sent stocks sinking in recent weeks. Health care stock funds returned an average of 19.1 percent annually over the last five years, more than any of the other 101 fund categories tracked by Morningstar. The strong returns are luring more dollars: Inves tors put more into health care funds last month than they pulled out, contrary to the trend for stock funds in general. Demand for health care tends to spike once a person gets past the age of 70. A similar leap occurs when someone enters the middle class. Both trends are occur ring around the world. Weekly spotlight on mutual fund performance Fund Wkly % YTD % obj return return Biggest funds American Funds A AmcpA p American Funds A AMutlA p American Funds A BalA p American Funds A BondA p American Funds A CapIBA p American Funds A CapWGA p American Funds A FdInvA p American Funds A GwthA p American Funds A HI TrA p American Funds A IncoA p American Funds A ICAA p American Funds A N PerA p American Funds A SmCpA p American Funds A WshA p BlackRock Instl StrIncoOpp BlackRock Instl EquityDv BlackRock Instl GlbAlloc r Dimensional Fds EmMCrEq Dimensional Fds EmMktV Dimensional Fds USLgVa Dodge&Cox Balanced Dodge&Cox Income Dodge&Cox IntlStk Dodge&Cox Stock DoubleLine Funds TRBd I FPA Funds FPACres Fidelity Freedom FF2020K Fidelity Freedom FF2030K Fidelity Invest Balanc Fidelity Invest Contra Fidelity Invest GroCo Fidelity Invest LowP r Fidelity Invest Puritn Fidelity Invest TotalBd Fidelity Spart Adv 500IdxAdv Fidelity Spart Adv TotMktAd r Frank/Temp Frnk A IncomA p Frank/Tmp Frnk Adv GlbBdAdv Harbor Funds CapApInst Harbor Funds Intl r Loomis Sayles LSBondI Metro West Fds TotRtBdI Oakmark Funds I EqtyInc r Oakmark Funds I Intl Oakmark Funds I Oakmark Oppenheimer Y DevMktY PIMCO Instl PIMS AlAsetAut r PIMCO Instl PIMS AllAsset PIMCO Instl PIMS TotRt PIMCO Funds Instl Income Price Funds BlChip Price Funds CapApp Price Funds EqInc Price Funds EqIndex Price Funds Growth Price Funds MidCap Price Funds N Horiz Price Funds N Inc Price Funds Ret2020 Price Funds Ret2030 Price Funds Value Schwab Funds S&P Sel Vanguard Admiral 500Adml Vanguard Admiral GNMA Ad Vanguard Admiral HlthCr Vanguard Admiral ITAdml Vanguard Admiral ITGrAdm Vanguard Admiral LtdTrAd Vanguard Admiral MCpAdml Vanguard Admiral PrmCap r Vanguard Admiral STIGrAd Vanguard Admiral SmCAdm Vanguard Admiral TtlBAdml Vanguard Admiral WellslAdm Vanguard Admiral WelltnAdm Vanguard Admiral WdsrIIAd Vanguard Fds TotIntBInv Vanguard Fds DivdGro Vanguard Fds STAR Vanguard Fds TgtRe2015 Vanguard Fds TgRe2020 Vanguard Fds TgtRe2025 Vanguard Fds TgRe2030 Vanguard Fds TgtRe2035 Vanguard Fds TgtRe2040 Vanguard Fds TgtRe2045 Vanguard Idx Fds TotlIntl XC LV BL IB BL GL LC LG HC BL LC GL GL LC GT EI MP EM EM LV BL IB IL LV MT MP MP MP BL LG XG MC BL IB SP XC BL WB LG IL GT IB BL IL LC EM MP MP IB GT LG BL EI SP LG MG SG IB MP MP LV SP SP MT HB IM IB SM MC LC SB SC IB BL BL LV WB EI BL MP MP MP MP MP MP MP IL XC SP XC Vanguard Idx Fds TotStk Vanguard Instl Fds InstIdx Vanguard Instl Fds InsTStPlus 5yr % return 0.7 +3.4 +14.1 0.6 +2.7 +12.6 0.6 +2.7 +11.4 +0.4 +5.4 +4.8 0.0 +2.6 +8.5 0.2 0.3 +8.4 0.8 +0.5 +12.2 0.3 +1.0 +12.3 +0.4 +1.6 +8.7 0.3 +3.1 +10.8 0.5 +4.6 +12.6 +0.2 3.5 +9.6 +0.5 4.8 +10.4 1.1 +2.7 +14.0 0.3 +2.7 +6.2 1.1 +0.4 +11.7 0.8 1.1 +6.1 0.5 +1.2 +3.8 0.7 0.4 +1.2 1.0 +1.0 +15.2 1.0 +2.6 +11.9 +0.1 +5.5 +5.5 0.2 1.0 +7.3 1.6 +1.0 +14.0 NA NA NS 0.3 +1.4 +10.1 0.0 +1.2 +7.8 0.1 +0.1 +8.7 0.5 +3.8 +10.7 0.9 +1.1 +13.8 +0.6 +2.7 +16.3 +0.2 +0.2 +14.5 0.6 +3.9 +10.8 +0.3 +5.5 +5.7 1.0 +3.7 +14.0 0.5 +2.5 +14.2 0.0 +3.3 +10.2 0.3 +2.8 +6.5 0.7 +1.4 +13.8 NA NA NA +0.3 +4.7 +9.2 +0.3 +5.5 +7.3 0.0 +0.6 +8.9 0.1 10.0 +8.9 0.6 +2.4 +15.2 0.1 +0.1 +7.5 NA NA NA NA NA NA 0.1 +4.2 +5.2 NA NA NA 0.6 0.0 +15.6 0.2 +5.0 +12.2 0.6 0.4 +12.0 1.0 +3.5 +13.7 0.0 0.0 +15.1 +1.1 +1.4 +15.4 +1.6 3.8 +19.7 +0.2 +5.6 +4.6 0.0 +1.5 +9.8 0.0 +0.8 +10.9 0.7 +2.2 +14.1 1.0 +3.6 +13.9 1.0 +3.7 +14.0 +0.5 +6.1 +4.2 1.2 +15.3 +18.9 +0.4 +7.4 +4.9 +0.3 +6.0 +6.6 +0.2 +2.2 +2.3 +0.5 +2.6 +15.4 0.3 +6.7 +15.1 +0.1 +2.2 +3.3 +1.8 2.5 +15.1 +0.3 +5.6 +4.3 0.2 +4.8 +9.3 0.5 +4.0 +10.6 1.3 +2.3 +13.0 0.0 +6.6 NS 0.7 +2.7 +13.5 0.0 +2.3 +9.5 0.1 +2.8 +8.5 0.1 +2.5 +9.1 0.2 +2.1 +9.6 0.2 +1.7 +10.0 0.2 +1.3 +10.5 0.3 +0.8 +10.7 0.3 +0.8 +10.7 +0.1 4.8 +4.2 Best performers Price Funds AME Fd Price Funds InstAXfd r Frank/Tmp Frnk Adv TFrMkAd GMO Trust Taiwan Fidelity Selects MdEqSys ProFunds Inv Cl UltraJapan AQR Funds MultStrAlt I Rydex Dynamic NasdStrH Eaton Vance A AsianSCo t Allianz Funds D GlblWell Fidelity Adv Foc A HlthCrA r Fidelity Selects Health Schwab Funds HlthCare Fidelity Selects Pharm Pioneer Funds A EmMktA Fidelity Selects NtGas Fidelity Advisor A ValLdA p Fidelity Invest JpnSm ProFunds Inv Cl UltBull Rydex Dynamic S&P5 2xH p Fidelity Invest BlueChVal ProFunds Inv Cl UltDow30 Hennessy Funds LgCFn Inv Oak Assoc Fds LivOakHlt Bridgeway Funds BlChp35 Putnam Funds A GlblHlthA AQR Funds DivArb I Zachs Funds MktNeutA t ICON Fds Hlthcare S Eagle Funds Gr&IncA +2.5 +14.1 +3.7 +14.0 +2.7 +14.3 Fund Wkly % YTD % obj return return SQ SG SG SG SQ SG SE SG SG SG SG HB SG PR SV SC SG SG SC SG SG SC SC SC SG SC SG SG SC SQ +20.1 +10.9 +17.6 +10.5 +16.4 +13.8 +21.0 +12.9 +14.8 NS +17.8 +25.2 +13.0 +9.3 +8.0 +6.7 +11.2 +13.6 +13.7 +12.5 +12.5 NS +16.9 +15.4 NS +14.4 +12.9 +10.9 +13.3 35.8 Fund Wkly % YTD % obj return return 5yr % return EM EM EM PR HB SQ MP SQ PR HB HB HB HB HB EM NR XV PR SQ SQ XV SQ FS HB LC HB MP SQ HB EI +5.5 +5.0 +4.8 +4.5 +4.1 +4.0 +3.9 +3.9 +3.5 +3.4 +3.4 +3.3 +3.3 +3.3 +3.2 +3.2 +3.2 +3.1 +3.1 +3.1 +3.1 +3.0 +3.0 +3.0 +3.0 +2.9 +2.9 +2.9 +2.9 +2.9 5yr % return 15.0 14.8 17.3 13.5 11.0 12.3 +12.2 13.2 10.1 7.8 6.5 +17.4 7.9 1.5 15.2 10.2 16.3 7.0 10.9 8.6 13.1 1.6 11.6 4.0 6.4 7.9 3.0 10.7 6.0 17.5 ProFunds Inv Cl UltSmCap Oberweis Funds EmergGr Buffalo Funds MicroCp t Oberweis Funds MicroCap Rydex H Class Rus2KStrH p Ivy Funds MicroCGA t Fidelity Selects Trans RidgeWorth Funds SmCpGrI AMG Managers EmgOppSv AMG Managers FrntrSCG I Lord Abbett I DevlpGro Rydex Investor Biotech Turner Funds SmlCpGr Oberweis Funds ChinaOpp SchdSmCV r Royce Funds MicroCapI Columbia Class Z SCpGthZ Amer Century Inv SmCapGr RBC Funds EntprI Wells Fargo Adv A TradSCGrA John Hancock A SmCpEqA Mairs & Power SmallCap AMG Managers EmgCo Inst JP Morgan Instl SmallCo Vanguard Instl Fds R2KGrth Westcore MicroOpR r Scout Funds SmCap Wilmington Fds SmCapGI Wilmington Fds SmCapStr I Rydex Dynamic InvNasdSt H Worst performers 0.5 1.0 0.5 4.2 4.2 4.1 3.4 3.3 3.2 3.1 3.0 2.9 2.7 2.6 2.5 2.4 2.3 2.2 2.2 2.1 2.1 2.1 2.1 2.0 2.0 2.0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 +11.1 +11.7 2.1 +2.1 +8.2 22.2 0.8 +11.1 5.2 +13.6 +16.4 +16.8 +10.0 +12.5 5.3 4.0 +0.3 7.7 +4.2 +4.5 +0.6 2.2 4.1 +7.9 +3.2 +14.1 4.4 0.6 +13.1 +1.4 +8.4 +8.8 +6.1 +7.1 +15.0 +6.3 NS +32.7 +4.4 +17.6 +23.2 +23.8 +18.7 +20.8 1.7 +2.3 +9.1 +9.4 +22.7 +23.2 +9.4 +21.9 +7.9 +17.4 +12.9 +15.7 +1.2 0.5 +18.3 +11.5 Footnotes: e: Ex capitalgains distribution. f: Previous day{rsquo}s quote. n or nl: No upfront sales charge. p: Fund assets are used to pay for distribution costs. r: redemption fee or contingent deferred sales load may apply. s: Stock dividend or split. t: Both p and r. x: Ex cash dividend. NE: Data in question. NS: Fund did not exist at the start date. NA: No information available. Key to abbreviations and footnotes: Fund objectives: AB: Longterm topgrade corporate and govern ment bonds. AU: Gold oriented. BL: Balanced. EI: Equity income. EM: Emerging markets. EU: European region. GL: Global (includes U.S.). GM: General municipal bond. GT: General taxable bond. HB: Health and biotech. HC: Highyield taxable bond. HM: Highyield municipal bond. IB: Intermediateterm investmentgrade corporate bond. IG: Intermediateterm Treasury/government debt. IL: International (outside U.S.). IM: Intermediateterm municipal bond. LC: Largecap core. LG: Largecap growth. LT: Latin American. LU: Longterm Treasury/government debt. LV: Largecap value. MC: Midcap core. MG: Midcap growth. MP: Mixed portfolio (stocks and bonds). MT: Mortgage. MV: Midcap value. NM: Insured municipal bond. NR: Natural resources. PR: Pacific region. SB: Shortterm investmentgrade corporate bond. SC: Smallcap core. SE: Sector (specific industries). SG: Smallcap growth. SM: Shortterm munici pal debt. SP: S&P 500. SQ: Specialty diversified equity. SS: Single state municipal debt. SU: Shortterm Treasury/government debt. SV: Smallcap value. TK: Science and technology. UN: Unclassified. UT: Utility. WB: World bond. XC: Multicap core. XG: Multicap growth. XV: Multicap value 5year % return: Annualized performance over the past five years. Top 5 mutual funds by objective, yeartodate % return Emerging markets InstAXfd r AME Fd EmMktI EmgMkts I EmMktSC p Price Funds Price Funds Virtus Funds I Westwood Funds Templeton Adv Equity income Paydenfunds Federated Instl Invesco Funds A Touchstone Family Neubrger&BermFds ValLdrs StrValDvIS Utilities p PrYldEq Y EqIncInst Health | biotech Biotech Health HlthCrA r HlthSci BioDisA p Rydex Investor Fidelity Selects Fidelity Adv Foc A Price Funds Frank/Temp Frnk A Global Lazard Instl Brookfield Fds Cohen & Steers Virtus Funds A Vanguard Fds GblInfra I GblLstInf Y GblInfra I GlbInfraA p GblMnV Inv IntlOppt r Canada WldEqIncA ForOppI IntlA p +11.7 +11.1 +7.1 +5.9 +5.7 Stewart Capital Longleaf Partners Davenport Funds Columbia Class Z Lazard Open YTD % return Smallcap core +7.4 +7.1 +6.7 +5.5 +4.9 PrmCap r PrmcpCor StrDvIn LowVolEq I StlCPlus Invesco Funds A Lazard Instl Wasatch Hennessy Funds Prudential Fds Z&I YTD % return Mid Cap SmCap EqtyOpps MdCpVlZ p USMidC O SmallC p USSmMid I SmCapV CorGrow O SmallCoZ Natural resources +17.4 +16.8 +16.4 +15.4 +15.4 Invest Managers Invest Managers Oppenheimer A Oppenheimer Y Oppenheimer Y YTD % return +9.8 +8.5 +7.5 +5.9 +5.3 +3.8 +1.6 +1.2 +0.8 +0.2 +6.7 +6.2 +6.2 +5.9 +5.0 +6.9 +6.2 +3.9 +3.6 +3.1 YTD % return YTD % return YTD % return Largecap core Vanguard Admiral Vanguard Fds Fidelity Invest BMO Funds Vanguard Instl Fds Midcap core YTD % return International Wasatch Fidelity Invest Guggenheim Funds Virtus Funds I First Investors A YTD % return +3.9 +1.2 0.4 0.5 0.8 YTD % return Sector Fidelity Selects ReavSelct Fidelity Selects Fidelity Selects Invest Managers Trans +12.2 +7.3 ConStap +7.0 Air +5.1 MgdFutSt I +4.6 YTD % return Balanced Wells Fargo Adv A Federated A Advance Capital I USAA Group Westwood Funds IdxAstAll A MnSkAd p RetInc GrTxStr IncomeOp I YTD % return Intermediate bond +15.6 +14.9 +14.9 +11.7 +10.6 Invest Managers CutwSelInc Dimensional Fds ITExQual BMO Funds CorpInco I MorganStanleyInst CorPlsFxI BlackRock A TotRetA Pacific region YTD % return Longterm bond Matthews Asian Frank/TempFrnkA Eaton Vance A Neubrgr&BermFds EuroPac Funds IndiaInv r +48.5 IndiaGrA p +32.4 GrIndia t +30.9 GtChinEq I +7.0 AsiaSmCoA +6.2 MLP&Engy MLP&EnI I StlpthAlpha Alpha Y Sel40 Y Science | technology Price Funds Fidelity Selects Fidelity Advisor I Columbia Class A Columbia Class A GlbTech +14.4 Electr +13.2 Electronic +12.9 SelComm A +8.0 GlobTech +7.0 YTD % return Gold oriented GAMCO Funds Tocqueville Fds First Eagle OCM Funds Invesco Funds A YTD % return GoldAAA Gold t SGenGld p GoldInv t GoldPrec p +9.5 +9.5 +5.2 +4.3 +4.3 LTBnd LTGrAdml ExtDrGS4 x ExtDurI CorpInc Vanguard Idx Fds Vanguard Admiral GuideStone Funds Del Inv Instl Price Funds ExDurTreas USTryFd LTsyAdml SpLTTrAd r LTUSG +8.2 +8.2 +7.5 +7.2 +7.2 YTD % return +17.1 +15.6 +15.3 +15.0 +8.3 +35.1 +25.6 +20.4 +20.4 +19.8 YTD % return Mortgage Managed Acct Srs Legg Mason A Vanguard Admiral SEI Portfolios Deutsche Trust YTD % return YTD % return Longterm U.S. VanguardInstlFds Wasatch Vanguard Admiral Fidelity Spartan PIMCO Instl PIMS +8.9 +5.9 +5.9 +5.9 +5.5 US MrtgInst WAMtgBkA GNMA Ad GNMA A GNMA S +6.9 +6.1 +6.1 +6.0 +5.8 WHEN TO SELL A MUTUAL FUND Investing Scott Burns Syndicated columnist Q: My husband and I have more than $100,000 invested in two funds, Morgan Stanley Smith Barney ClearBridge Aggressive Growth Fund (ticker: SHRAX; expense ratio, 1.29 percent) and ClearBridge Appreciation Fund (ticker: SHAPX; expense ratio, 1.05 per cent). We’ve considered mov ing the investment to a lowercost fund at Van guard. If we sell the invest ment, we will owe quite a bit in taxes since the funds have appreciated substan tially since purchase. How does one assess whether to sell and pay taxes versus staying put? A: The first thing to remember is that taxes are not a problem. They are a consequence of financial gain. The second thing to consider is that the tax rate on longterm gains is rela tively low. With that mind set, let’s look at the specif ics. Just because a managed fund has an expense ratio higher than an index fund doesn’t mean it should immediately be sold. In your case, for instance, one fund should be sold while the other should be watched closely, or sold. Your ClearBridge Ag gressive Growth shares carry a fourstar rank (above average) by Morn ingstar. It blasted ahead of the S&P 500 by a margin of 4.81 percent annualized over each of the last five years. That’s not some thing you casually throw away. Unfortunately, superior past performance doesn’t guarantee superior future performance. So I suggest watching the fund closely and being ready to replace it if perfor mance falters for a sus tained period of time. Your ClearBridge Appre ciation Fund shares are a different matter. Over the last five years, 62 percent of comparable funds have provided better returns. It has trailed the S&P 500 by an annualized 2.02 percent a year. Selling this fund will realize less in capital gains. It will also give you an opportunity to start mak ing your own decisions and buy a lowcost index fund. Q: After years of relying on the experts to guide me on insurance purchases and advice, I got really burned by a socalled friend and church deacon. Since then I have been gunshy of all insurance advisers. I am 74 and my wife is 66. No debt, and house and cars are paid. We both have Social Security bene fits; I have a modest com pany retirement. A: I’m not sure what kind of insurance products you are writing about so I can’t comment. But if any of your insur ance policies are life insur ance, you might consider either dropping the policy or converting any cash value to a life annuity. Life insurance is useful when we are young be cause we have big familial projects to complete. They won’t be completed if we die. But with Social Security and pension income, a debtfree home and no consumer debt, you’ve got the essentials covered and probably don’t need life insurance. Questions: scott@scottburns.com Copyright 2014, Universal Press Syndicate